BREACH OF COVENANT OF GOOD FAITH AND FAIR DEALING (BAD FAITH)
In every insurance contract there is an implied covenant of good faith and fair dealing that neither party (insurance company and insured) will do anything that will injure the right of the other party to receive benefits of the insurance contract (Comunale v. Traders & General Ins Co., 50 Cal. 2d 654, 658-659 (1958)). In the case of an insurance contract, a breach of the covenant of good faith and fair dealing will allow for an action in tort (Foley v. Interactive Data Corp., 47 Cal. 3d 654, 682-683).
A breach of the covenant of good faith and fair dealing by an insurance company is also known as bad faith. When an insurer (Insurance company) unreasonably, or without proper cause, withholds a payment or denies a payment that is due under the policy, the insurer (Insurance company) has breached the insurance contract and subjected themselves to the tort of bad faith. (Gruenberg v. Aetna Ins. Co, 9 Cal. 3d 566, 574-575 (1973; Waters v. United Serves Auto Ass’n, 41 Cal. App. 4th 1063, 1070 (1996)).
An insured may have an action against the insurance company for breach of the covenant of good faith and fair dealing if the insurance company either: (list is not all inclusive)
1) Unreasonably or without proper cause withholds policy benefits due to the insured
(Gruenberg v. Aetna Ins. Co, 9 Cal. 3d 566, 575 (1973)).
2) Unreasonably fails to properly investigate a claim by or against the insured
(Egan v. Mutual Omaha Ins Co, 24 Cal. 3d 809, 819)
3) Wrongfully refuses to defend a claim or settle within policy limits, against a third-party claim
(Crisci v. Security Ins Co., 66 Cal 2d 425, 433)
4) Unreasonably engages in abusive practices or conduct that impairs the insured’s right to receive the benefits under the insurance contract (Hughes v. Blue Cross of Northern California, 215 Cal. App. 3d 832, 845-846)
UNREASONABLE FAILURE TO PAY CLAIM
An insurance company that unreasonably fails to pay a claim promptly may be liable for failure to settle the claim. (Neal v. Farmers Ins Exchange 21 Cal. 3d 910, 921)
INSURER DUTY TO INVESTIGATE
An insurer (insurance company) has a duty to thoroughly investigate a claim by the insured. The insurer must fully inquire into all possible bases that might support the insured’s claim. (Egan v. Mutual Omaha Ins Co, 24 Cal. 3d 809, 819 (1979)). All insurance carriers in California are also required to comply with California Code of Regulations, Title 10, Chapter 5, subchapter 7.5, which provides for timely response by the insurance company to claims and other communications and faith and equitable settlements.
To determine if an insurer has reasonable grounds to deny a claim, the court must first determine “whether Defendant thoroughly investigated Plaintiff’s claim prior to denying it” (Chaidez v. Progressive Choice Inc Co. (2013 WL 1935362 (C.D. Cal. 2013).
FAILURE TO DEFEND A CLAIM
If a third-party claim is brought against the insured, the insurer (Insurance Company) must defend the claim (Buss v. Superior court, 16 cal. 4rth 35, 57-58 (1997). However, the for the insurer to have a duty to defend, the third party’s claim must be based on a risk or conduct that is potentially covered under the policy (Montrose Chemical Corporation v. Superior Court, 6 Cal. 4th 287, 300).
FAILURE TO SETTLE
An insurance company that unreasonably fails to settle a claim against its insured might constitute bad faith. The insurer must settle the claim against its insured if accepting the settlement offer is the most reasonable manner of disposing of the claim (Crisci v. Security Ins Co., 66 Cal 2d 425, 430 (1967)).
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Each case or claim contains a set of specific facts and application of the law varies from case to case.
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